Corporate fraud is perpetrated by individuals, and a leading fraud indicator is the individual's personal financial behaviors. How an individual earns, saves, invests, manages, and spends money are key factors. Typically, fraud and embezzlement begins with the individual telling himself, “ . . . just this once, I'll pay it back.” But once that line is crossed, the individual rarely turns back. It becomes easier and easier, with the amount embezzled steadily increasing before being detected, if at all.
The core of the problem is a breach of fiduciary duty by the trustees of the investors' interests (i.e., the board of directors and management). A passive, non-independent, and rubber-stamping board of directors made up of members selected by the CEO or chairman of the board is not a guarantee of effective oversight of management actions and conduct.
However, management teams that place personal interests above investor demand for value creation when conducting the affairs of the corporation incur a systemic conflict of interest. In the past, breaches of fiduciary duty by management and boards of directors were sometimes condoned by auditors who lacked independence and possessed limited capability and authority to challenge management.
The Sarbanes-Oxley Act (SOA), signed into law on Jul. 30, 2002 was designed to protect America's shareholders and workers and gave the Federal Government new powers to enforce corporate responsibility and to improve oversight of corporate America. This legislation gave new power to prosecutors and regulators seeking to improve corporate responsibility and protect America's shareholders and workers. Among other reforms, the legislation:                created a new accounting oversight board to police the practices of the accounting profession;        strengthened auditor independence rules;        increased the accountability of officers and directors;        enhanced the timeliness and quality of financial reports of public companies;        barred insiders from selling stock during blackout periods when workers are unable to change their 401(K) plans;        created a new securities fraud provision with a 25-year maximum term of imprisonment;        directed the Sentencing Commission to review sentencing in white collar crime, obstruction of justice, securities, accounting, and pension fraud cases;        required CEOs and Chief Financial Officers (CFOs) to personally certify that financial reports submitted to the SEC fully comply with the securities laws and fairly present, in all material respects, the financial condition of the company;        made it a crime to willfully certify any such financial report knowing the same to be false or non-compliant, punishable by up to 20-years in prison;        criminalized the alteration or falsification of any document with the intent to obstruct the investigation of any matter within the jurisdiction of a United States Department or Agency;        criminalized retaliatory conduct directed at corporate whistleblowers and others; and        required that audit papers be retained for five years and criminalized the failure to maintain such records.        
The Sarbanes-Oxley Act places considerable emphasis on correcting lax corporate governance practices, including:                management dealing in an environment full of pervasive conflicts of interest;        lack of strict transparency, reliability, and accuracy standards in financial reporting;        lack of independence between the key players in corporate governance, beginning with the board of directors, senior management, and auditors;        lack of adequate enforcement tools for regulators; and        widespread conflicts of interest influencing securities market transactions.        
Addressing the systemic weakness of the corporate governance practices in the post-Sarbanes-Oxley corporate environment requires more than correcting the most visible manifestations of the problem. Weak governance practices are the combined result of several offenders and lax controls over the performance of both management and the board of directors.
Laws and regulations have never been sufficient to guarantee society's welfare or, in this case, improvement in corporate governance standards. In many ways, Sarbanes-Oxley has merely made express the duties and responsibilities of boards, CEOs, and CFOs and taken away from them the ability to point a finger at someone else if fraud and abuse occur at a company covered by Sarbanes-Oxley. However, these duties existed before Sarbanes-Oxley was enacted albeit in less explicit fashion. While it may be comforting to some that Sarbanes-Oxley has eliminated the ability of senior management to claim they did not know or were not aware, this is still unlikely to prevent people from committing the types of fraud and abuse that led to the passage of Sarbanes-Oxley in the first place.
While Sarbanes-Oxley, in its current or future form, will play a necessary role in ensuring that U.S. companies avoid certain excesses, the market and investors should continue to seek out solutions that are driven by market needs that help restore and maintain the confidence of investors in public companies.
Accountability is the key. The owners of America's corporations (i.e., the stockholders) must hold managers, directors, auditors, and market participants accountable. The performance of these groups directly impacts shareholder value. The corporate governance process must be re-engineered into one that guarantees performance excellence by management and the board of directors when performing their agency duties as trustees of shareholder confidence.
Although implementing corporate governance best practices can result in additional operating costs, good corporate governance is not an option but an obligation, if shareholder interest is to be protected. Compliance costs are only a small fraction of the large losses suffered by stockholders because the board and/or executive management did not comply with good corporate governance practices. Sarbanes-Oxley has taken great steps at ensuring proper corporate governance and has put some teeth into board and management penalties for non-compliance.
Sarbanes-Oxley, in its present form, is a good first step in combating abuses. However, additional protections should be put in place which complement Sarbanes-Oxely by more directly addressing those problems which Sarbanes-Oxley, by itself, cannot solve such as, for example, fraud prevention.
Further limitations and disadvantages of conventional, traditional, and proposed approaches will become apparent to one of skill in the art, through comparison of such systems and methods with the present invention as set forth in the remainder of the present application with reference to the drawings.